Fitch Ratings said on Wednesday that a rise in government debt globally would cause the market to fall, with developing countries not benefiting from lower interest rates and debt servicing burdens.
Global sovereign debt rose from $ 10 trillion to $ 77.8 trillion, or 94% of world GDP, as governments boosted spending on health and shed their economies prevented by a fallout from the coronovirus epidemic, Fitch calculated .
Both growth and debt levels are at a record high, with Fitch’s head of sovereign ratings, James McCormack, writing in a report that the last 10 trillion installments took seven years to build.
McCormack said that as a government debt-to-GDP measure – often used as a rough measure for debt stability – it stands at around 60% of GDP for both developing and developed markets, it has given two Indicated a fall in interest rates for the groups.
“There is no ‘free lunch’ with low rates for the sovereignty of the emerging market,” he said.
A report found that the average interest rate on the entire stock of government debt has fallen from 4% to 2% over the past decade in developed markets. In emerging markets, the rate increased from 4.3% to 5.1%.
Fitch estimates that interest payments by governments in developed and emerging markets will be around $ 860 billion by 2022, even though the former group’s debt is three times the size of the latter.
“As developed and emerging-market governments now have similar debt / GDP ratios, they have very different interest-service burdens,” McCormack said.
“With a rapidly emerging emerging-market government debt, this should be a cause for concern, and has been an important factor in the debt crisis in many emerging markets in 2020.”
Government interest payments relative to both GDP and revenue had doubled since 2012, while the figures for the sovereign of Sub-Saharan Africa were “staggering” – the ratio of interest payments as a share of revenue to 5% to 12% over the same period extended.
Last year a record five sovereign defaults occurred – Argentina, Ecuador, Lebanon, Suriname and Zambia.
“We expect more defaults to occur as well as greater focus on the debt-measure initiative in 2021”
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